Bitcoin Ushers in Blockchain Technology
Industry Regulation on the Rise
Bitcoin may prove to be the most spectacular financial bubble in history, but its greatest legacy may be what it leaves behind — the popular blockchain technology.
In its most basic form, a blockchain is a digital, decentralized ledger that immutably chronicles every transaction, and multiple parties interact on a peer-to-peer basis with no need for a governing authority. Think of a Google document, where multiple parties can simultaneously see the most up-to-date version and add new content, all trusting that the previous content cannot be manipulated without everyone noticing.
This shared version of reality and trust has many applications beyond digital currencies. Already, companies such as IBM are using blockchain to track diamonds from the mine to the customer. Health care groups are experimenting with blockchain for record management and local governments are using the technology for land title registrations.
Bitcoin undoubtedly introduced blockchain technology to the modern-day consciousness. Bitcoin’s rapid rise as a digital currency in late 2017 drew the attention of mainstream media and tech pundits around the world. With many believing that it could supplant the U.S. dollar, investors poured money into the nascent technology hoping to strike it rich.
Limited regulatory oversight and investor protections caused the price of a single bitcoin to explode to more than $19,000. But as the mania cooled and regulators took notice, the bubble burst and prices tumbled below $4,000. Now, with some investors facing 80 percent or more in losses, many wonder if bitcoin will survive.
More Regulation, Please
If 2018 was the year of regulatory scrutiny, 2019 and 2020 will be the years of regulatory clarity. One of the primary reasons for the bitcoin bubble burst was an increase in regulatory scrutiny from the federal government towards digital currency exchanges, where investors buy and sell bitcoin and other cryptocurrencies.
Crackdowns on initial coin offerings (ICOs) also spooked many investors and blockchain teams. With ICOs, companies raise funds by issuing and selling digital tokens, similar to online crowdfunding. And while ICOs started as a novel way for companies to raise money, they have drawn ire from the Securities and Exchange Commission as many investors fall victim to fraud and other malfeasance.
While expansion of regulatory oversight slowed the adoption of bitcoin and other blockchain use-cases in the short run, it should be beneficial in the long run. As the regulatory sphere takes shape, more institutional investors will enter the space, and companies will have greater clarity on how to function within an approved framework.
Currently, established companies are working with regulators to develop institutional-grade products. The New York Stock Exchange is working to launch Bakkt — a digital asset trading platform; and Fidelity is developing custodial services for bitcoin and other digital assets for large investors. Some state governments are also beginning to take advantage of the new technologies. Ohio announced it will be the first state to accept bitcoin for tax payments, and Wyoming is working legislatively to create an environment for blockchain development.
The Future of Bitcoin and Blockchain
Bitcoin has experienced multiple periods of boom and bust and yet continues to survive. While the price of bitcoin may be the least interesting component of its functionality, it does indicate adoption rates and captures the attention of everyday investors. The longer bitcoin persists, the greater the chance it will see widespread use and usher in a robust regulatory framework. Even if the price of bitcoin never rises again, its legacy of introducing the world to the power of blockchain technology will remain.